Hope springs eternal

Colombia’s second-largest pension and the UK’s Pension Protection Fund are two recent institutions to carve out portions of their funds to invest in alternatives.

One hope for the future of the private equity industry is the emergence of new pools of capital: institutions that have not historically targeted commitments to private equity funds. 

In the past few weeks, several major institutions have either carved out allocations to private equity for the first time, or have publicly announced they are considering creating private equity investment programmes.

One of the biggest announcements recently involved Norway’s massive sovereign wealth fund, which has about $409 billion in assets. The fund, called the Government Pension Fund Global, is considering establishing an investment programme that targets environmental-related opportunities that would include private markets, and investments in listed equities and bonds. 

Norway’s finance ministry is also considering allocating capital to private equity and infrastructure funds for sustainable investment opportunities in emerging markets. The nation’s central bank, Norges Bank, is assessing the opportunity and will make a recommendation in the fall, a spokesperson for the finance ministry tells PEI. 

The ministry of finance estimated the environmental investment programme would have NOK20 billion (€2.5 billion; $3.4 billion) available to spend over a five-year period. A portion of that total would be allocated to private equity and infrastructure, if ultimately approved by the ministry of finance. 

“Examples of environmental investments outside the investment universe of the fund may be investments in green infrastructure projects, such as wind farms … and investments in start-up companies in eco-friendly technology,” according to the ministry of finance’s 2010 budget summary. 

Another institution to open up to private equity is the UK’s Pension Protection Fund (PPF), which has carved out 20 percent of its £3.9 billion (€4.3 billion; $5.9 billion) in assets under management for alternative asset classes, including private equity, property, infrastructure and absolute return funds. 

The PPF, which was set up in 2004 to act as a safety net for the members of pension scheme of companies that go out of business, will have about £780 million available for investments across the alternative asset classes. The PPF hired private equity specialist Guy Fraser-Sampson last year to advise on the fund’s investment strategy on an interim basis. 

PPF’s portfolio has historically consisted of bonds, cash and equities, with its only exposure to alternatives being a 7.5 percent allocation to real estate. 

In South America, Colombia’s Proteccion SA, the country’s second-largest pension fund, plans to invest 2.4 trillion pesos ($1.3 billion; $924 million) in private equity over the next two years, according to a report from news agency Bloomberg. The pension is looking to invest about 10 percent of its assets in the asset class by 2012, from its current allocation of less than 1 percent today, the article said. 

The world’s biggest pension, meanwhile, Japan’s Government Pension Investment Fund, with $1.3 trillion in assets, had been mulling a possible move into alternatives, but has decided not to change its allocation for the next five years, according to a Reuters report. Close to 70 percent of the pension’s fund is invested in bonds. 

As some traditional sources of private equity capital shy away from the asset class because of liquidity issues, industry experts forecast that GPs will do a lot more traveling to build their funds. “These GPs are going to have to go abroad to raise money,” one executive at a global placement agency tells PEI. “A lot of their investors are out of cash or are waiting for distributions to put more into the next fund.”